"In this economic environment, lenders have to find other ways to entice customers by offering more than just the ‘rate’ and finding solutions that allow them to differentiate themselves from the competition"
FR: With the recent base rate rise and a somewhat stalling housing market, will the mortgage market continue to innovate?
The mortgage market is fiercely competitive and lenders must continuously innovate to find better ways of doing things to attract and retain customers. With less buyers in the market, and interest rate rises creating so much uncertainty, lenders can only do so much with their rates. In this economic environment, lenders have to find other ways to entice customers by offering more than just the ‘rate’ and finding solutions that allow them to differentiate themselves from the competition while providing something that the customer needs.
FR: What are the best recent innovations in terms of products and what others would you like to see introduced into the market?
We’ve already seen great examples of new products coming to market as lenders look for ways to help customers – for example from Natwest and Virgin who both announced deals which allow the borrower to switch to a better deal if rates change. These products provide a viable solution in an uncertain market and helps to create movement. With many homeowners wondering whether to lock into new deals or adopt a wait and see approach, these products offer the flexibility to move when the market does.
But we also need to acknowledge the practice whereby some lenders have been withdrawing products with just a few hours notice. With the current turmoil in the market we expect this practice to continue. Product withdrawals create very stressful situations for everyone involved and cannot be seen to adhering to Consumer Duty in any way. As an industry we have to do better for our clients and we’ve seen the introduction of the 24-hour mortgage pledge in a move to get lenders to take more accountability and give more notice before withdrawing.
Using data and focusing on products for cohorts of clients, not just on price, but introducing more efficient products with a longer shelf life that deliver better consumer outcomes. That has to be the future. Let's take green mortgages, at present the modus operandi is to offer a lower rate for an A/B rated property, but this is still focused on price and therefore susceptible to the forces currently at play. If we focus on truly improving energy efficiency, we focus on the need of the client and not just price, such products can then have a longer shelf life.
FR: Will the green mortgage market continue to expand?
Despite the widespread benefits, existing green products in the market have so far attracted little interest and achieved very little traction. With interest rates rising, coupled with the cost-of-living crisis, keeping outgoings down is a key priority. True green mortgages should reward homeowners for making retrofit upgrades to their properties to make them more energy efficient. This might include more unique lending terms or improved affordability calculations to reward those who take the steps to lower the emissions in their home. Some truly green mortgage offerings also provide money towards making energy improvements on a property. This incentive to save money at a time when finances are being squeezed could provide the impetus needed to increase the uptake of these products.
If better lending terms could help raise awareness of the benefits of efficient homes, further increasing the demand for energy efficient dwellings, then this can only be a good thing in the long run. Lenders hold the power to change and we know that many are working hard to address this using data to better understand customer needs to be able to offer the right solutions.
FR: Should brokers be offering green innovation as standard?
Brokers should be offering green innovation as standard by now, but it needs to be done in a way that homeowners can understand and get on board with. This means rather than telling them their CO2 emission numbers and EPC ratings, we need to show them what this means in pounds and pence.
We estimate that there are over 15 million properties in the UK that need to improve their Energy Performance Certificate (EPC) ratings. We know that there is appetite to do better and make property improvements but a lack of funds required to make those changes provides a huge barrier. This is where green mortgages will really come into play. In a recent speech, the FCA highlighted the growing role that green mortgages have to play in decarbonising the UK’s housing stock by helping borrowers to improve the energy efficiency of their home. This has become an industry-wide issue and everyone in the chain has a role to play. That includes mortgage lenders and brokers, and subsequently we will see more innovation coming through in the next 12 months.
FR: If you could see one headline about the mortgage market in 2023, what would it be?
For the sake of homeowners around the country I would love to see the base rate drop again to make it more affordable for many individuals, particularly first-time buyers who desperately want to achieve their aspirations of home ownership. But I also realise this is so far away from the realms of reality and even if it did start to come down, it would be so incremental that it would take a long time for this to have any real effect.
We are going to see new innovation coming through from lenders who need to address the underlying issues holding people back. Over the next six months the launch of new products coming to market will start to dominate the news. Lenders need to lend, and the only way to stay ahead of the competition is to keep moving forward, anticipating sentiment and finding ways that make life easier and lending more accessible to a wide variety of borrowers. To do this lenders will be using data to fully understand the market and those that use it right will be able to use this insight to offer more bespoke mortgage products. It’s not an easy challenge, but I do believe we will see some great products coming to the fore.
